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Issue no: 954/82

• JUNE 13 - 15, 2017

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

Thousands Rally in Tbilisi against Arrest of Rapper Duo NEWS PAGE 2

FOCUS ON VOCATIONAL EDUCATION The Swiss provide expert advice on Public-Private Partnership to boost VET in Georgia

PAGE 6, 10

Investment Climate in Georgia Discussed at Georgia-US Meeting in Washington BY THEA MORRISON

W

ithin the framework of the celebrations dedicated to the 25th anniversary of the establishment of diplomatic relations between Georgia and the United States (US), a special session was held at which the investment climate and relations between the two countries were discussed. First Deputy Infrastructure Minister, Irakli Matkava was asked questions about improper treatment of major companies and investors operating in Georgia. Continued on page 2

Wanna Get Rich? Make Batumi Your “Second Home”! ISET PAGE 4

Another 45 Banks in Ukraine to Be Liquidated PAGE 5

Tourism Market Watch GALT & TAGGART PAGE 8

Natakhtari Fund, Coalition for Children & Youth Sign Cooperation Memorandum SOCIETY PAGE 11

BI Auction for Art Partners with Solo for Upcoming Auction CULTURE PAGE 11 Prepared for Georgia Today Business by

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NEWS

GEORGIA TODAY

JUNE 13 - 15, 2017

Investment Climate in Georgia Discussed at Georgia-US Meeting in Washington Continued from page 1 The participants of the session were namely interested in the cases of the Georgian Manganese and Phillip Morris companies. Former USAID Deputy Administrator, Thomas Melia said that the Government of Georgia has carried out “factual expropriation” of Georgian Manganese. Matkava responded by saying that the process of implementing reforms is still underway in Georgia. He added that if investors have any problems, they can always apply to international arbitration. Georgian Manganese is a major producer of high-grade and regular-grade manganese in Georgia. Its mining operation includes seven mines and eight quarries throughout the country. The Ministry of Environment and Natural Resources of Georgia appointed the head of private company Georgian Manganese on May 11. This was the first case in the history of Georgia when the State interfered in the management of a private company and appointed its own representative there. The decision was made after a court verdict, which ruled that the company had created extremely grave ecological conditions in the town of Chiatura, in the Imereti region of western Georgia. “After detailed studies carried out, it was revealed that the company had not been working to eliminate the contamination and degradation of the river and soil, but rather the situation had wors-

ened. This created an ecological catastrophe at the scene,” the statement of Environment Ministry reads. The ministry appointed Nikoloz Chikovani as the Manager of the Chiatura Manganese Mine, adding that he will be responsible for improving the ecological situation in the town. The Phillip Morris case saw a dispute between JSC Tbilisi Tobacco Ltd and private tobacco company Philip Morris which was reviewed by the City Court this February. Tbilisi City Court delivered its verdict on February 10, which envisaged unprecedented high fines on tobacco companies Phillip Morris and British American Tobacco of GEL 93 million and GEL 270 million, respectively. The Court claimed that the Georgian law on competitiveness had been violated. At the same time, the Court found the accused party to be holding a dominating position on the Georgian tobacco market. However, the Appeals Court abolished the verdict of the City Court on June 9 and released the tobacco companies from the obligation to pay the fines. After the decision of the Appeals Court, Philip Morris Company issued a statement saying that justice had been restored. “The decision of the Court of Appeals was objective and impartial. We will continue to operate in Georgia as before,” the statement of the company reads. The statement added that the decision would have a positive impact on foreign businesses in Georgia.

Thousands Rally in Tbilisi against Arrest of Rapper Duo BY DAVID MONGAZON

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n June 10, several thousand people demonstrated on Rustaveli Avenue in front of the old Parliament building in reaction to the arrest of Mikheil Mgaloblishvili and Giorgi Keburia, together a rapper duo called Birja Mafia. They are charged with possession of a large quantity of drugs and face up to lifetime imprisonment. According to the Ministry of Internal Affairs, they were arrested with doses of 1.5 and 2.3 grams of MDMA each, a synthetic drug also known as Ecstasy. The Ministry also claims that Keburia pleaded guilty of this accusation. However, the official account is challenged by the two arrested men. In March, the band released a video on YouTube depicting a policeman as a dog, which was quickly removed from the platform at the request of police authorities. But on June 4, a new version was published with the policeman blurred. The band claims it is this video that motivated the police to arrest them. Mgaloblishivili claimed during the court hearing that policemen during his arrest said it was to teach him “a lesson”. Such practices remind one of the Soviet era, when the tough policy on drugs could be used to blackmail or to make someone “disappear”. Still, modern Georgia sees the strict drug policy often used as a means to control people and allows the police to

Protesters support detained 'Birja Mafia' members on Rustaveli Ave. Source: Erika Copeland Facebook

abuse its power, activists claim. The drug policy in Georgia has improved but is still very repressive, according to various human rights groups, who give as an example the urine tests that the police can force people to do at any time in order to verify drug use, and the long terms of imprisonment for people found carrying drugs, regardless of quantity and type. This recent event seems to have obliged officials to deeply shift their position on the question. Without saying that the two rappers are innocent, Education Minister Aleksandre Jejelava announced that “they should be held accountable” if they are convicted, while Prime Minister Giorgi Kvirikashvili recognized in an unprecedented statement that the Georgian drug policy is “excessively harsh and requires liberalization” and

says he is in favor of an acceleration of the parliamentary work on this specific question with the aim of “adopting a law” in line with European standards “at least by the autumn session”. Energy Minister Kakha Kaladze also reacted by supporting the police institution but adding that the current drug policy and police practices need “radical changes”. The success of the Sunday protest also highlights its organizers, a group called the “White Noise Movement” formed against “inhuman drug policies” which is relatively small-scale but yet proved it was able to strongly mobilize outside its activist core. It also showed that drug policies activism, which is not the most mobilizing cause, could be easily related to other democratic issues such as free speech in this specific case, in order to create a larger social movement.


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BUSINESS

GEORGIA TODAY

JUNE 13 - 15, 2017

THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS

www.iset-pi.ge/blog

The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.

Wanna Get Rich? Make Batumi Your “Second Home”! BY OLGA AZHGIBETSEVA

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ith 6.3 million tourists visiting the country in 2016, Georgia has become a popular tourist destination. In May, the number of international visitors (those who stayed in the country 24 hours or more) increased annually by 19% (compared to the same month in the previous year). While Tbilisi Airport is the main border-crossing point, in May, Batumi Airport overshot Kutaisi Airport, famous for its low costs flights, and experienced a 52.3% annual increase in the number of arrivals. The concert of legendary musical band “Aerosmith,” which took place near Batumi, may be the main reason for the high increase in this particular month; however, an increase in arrivals was observed on a constant basis over the entire last year (see the graph). An increasing number of new direct flights during the season, and the introduction of charter flights during off -season, as well as the governmental program “Check in Georgia,” which subsidize concerts of well-known artists organized by municipalities or private companies, massive conferences, and all types of music festivals (for instance, the Annual Black Sea Jazz Festival), are all attracting more and more domestic and international tourists to the seaside destination of Georgia.

REAL ESTATE DEVELOPMENT The city’s readiness to receive increasing numbers of tourists is being helped by lengthening the boulevard and developing the real estate market. Developments in this market include increasing the number of hotels and commercial and residential properties. Statistics from the Georgian National Tourism Administration (GNTA) show that the upcoming pipeline of hotels for 2017-2018 is impressive and distinguished by such brands as: Design Rooms Hotel, Courtyard Marriot, Hotel Kempinski, Pullman Hotels & Resorts, and some other local and global brands. The number of residential properties growing fast, as well. The National Agency for Property Registry has observed an increasing trend in real estate sales in Batumi last years (see the graph). Usually, an increase in the number of transactions happens right prior the high-season (March- April), when construction companies are ready

Batumi after some rain, May 2017. A new residential complex next to the Justice House is still under development. Photo credit: Radu Costru

to deliver properties, and buyers are ready to enjoy upcoming season. This March, the number of transactions reached its highest point so far, 735 per month (53% increase compared to February, 2017).

WHO BUYS THE PROPERTY? Batumi is a city with quite a specific character, very lively and overcrowded with tourists at the height of the season (June-September,) and almost empty, with a lot of closed cafes and under occupied tourist accommodations during off-season. Thus, the acquisition of new property in such seasonal destination should have a good reason: either you move to this city for non-touristic business, or you invest to rent out properties during the season.

To investigate investment opportunities, we estimated the approximate rate of return on a residential property in Batumi. We used the following information: data from Booking.com on rental prices for residential properties in different seasons and days of week; average sales prices from Real Estate Laboratory (REM Lab); and, the tourist accommodation occupancy rate in Batumi for low budget economy class from Colliers International Report (2016). Rate of return on residential property in Batumi: If you buy 50 square meters of residential property for USD 720 per square meter (in total USD 36 000), and rent it out for between USD 65-80 per night, assuming that the property will be occupied only 33% of the year, your

10 Galaktion Street

annual return will be 22.8%. 22.8% is significantly high annual return, in comparison with the average of 10% in Europe. The capital of Georgia, Tbilisi, also offers an average 10% annual return on residential property. Such high returns can be attractive for local and foreign investors. Given the fact that Batumi is a very popular summer destination among neighboring countries as Azerbaijan, Armenia, Ukraine and Russia, it wouldn’t be surprising to find out that properties are being bought by representatives of these countries.

BATUMI AS A “SECOND HOME” There is a concept known as “residential tourism,” which relates to the “economic activity focused on the development,

construction and sale of housing that conforms to the extra-hotel sector, used by its owners as a holiday accommodation or residence, whether permanently or semi-permanently, away from their usual residence, responding to new forms of mobility in advances societies.” (Tomás Mazón and Antonio Aledo). The term residential tourism was mentioned for the first time in academia in the 1950s, particularly in relation to “Sun and Sea” destinations of Spain, and other countries in the Mediterranean region. Sometimes residential tourism is also referred to as “second homes,” “semi-migration,” “summer migration,” and “seasonal suburbanization” (Hall and Müller, 2004). It is generally agreed that residential tourism consists of the purchasing of second homes, mainly by foreigners, for the purpose of leisure and consumption. In the case of Batumi, residential tourism can be understood as the purchasing of properties for purpose of leisure during some part of a season, and renting it out during the rest of a year. Without having official statistics on the nationalities of new residents, we can’t state that Batumi has become a “second home” for foreigners or for locals. However, there is large potential for this sort of development. As literature on residential tourism discusses, there is a different economic impact from this type of tourism. New residents tend to visit “second homes” not only during the main vacation time, but for many other occasions, which contributes to the development of the city off-season as well. Batumi has already opened its gates for this summer season, waiting for old friends and new visitors to enjoy the Black Sea, Adjaran food, and international music. Maybe some of them will decide to return with an investment and call Batumi their “second home”.

Tel: (995 32) 2 45 08 08 E-mail: info@peoplescafe.ge


BUSINESS

GEORGIA TODAY JUNE 13 - 15, 2017

National Food Agency Seizes up to 1 Ton of Unidentified Meat operators did not have a veterinary certificate stating the origin and condition of the meat. Due to the violations, three business operators have been fi ned by the Agency. “The meat has been removed from sale and will be destroyed under the supervision of the NFA," the statement reads. The National Food Agency reports that the supervision and control of meat and other products will continue.

BY THEA MORRISON

G

eorgia’s National Food Agency (NFA) carried out an inspection of Tbilisi agricultural markets and meat wholesale facilities and seized around 1 ton of unlicensed and unidentified meat. The Agency reports that the business

Another 45 Banks in Ukraine to Be Liquidated BY DIMITRI DOLABERIDZE

T

he assets of another 45 Ukrainian banks have been put up for sale, the press service of the Individual Deposits Guarantee Fund (IDGF) of Ukraine reported on June 7. According to the announcement, assets worth 5.93 billion Hryvnia ($230 million) are up for sale, of which 95.5 percent are claims rights on loans, the remaining share being the main assets of the banks. Since 2015, nearly 100 Ukrainian banks have been eliminated. As of the end of May, 90 banks remain in the country. According to the Chairman of the Fund for Guaranteeing the Deposits of Individuals (FGVFL), Konstantin Vorushilin, the bankruptcy of the “super-big banks" is not expected in the foreseeable future. The State's debt to banks is quite impressive, and it continues to grow: at the time of writing, the Government of Ukraine owes $25.81 billion to banks, 55 percent

of this amount belonging to the National Bank of Ukraine (NBU). “For local small banks, this is a painful time as they engage in microcredit in the regions, unlike large institutions,” said Senior Analyst at ForexClub, Andrey Shevchishin. “I do not particularly believe the bankers or the fact that they will manage to unlock lending in the next year. On the one hand, the NBU is gradually reducing the discount rate, the level of which at the moment is 14 percent”. In fact, this is a benchmark for banks in calculating lending rates, which, in theory, should also decline. But high stakes are not the only obstacle to the mass extradition of loans. Banks do not have enough free resources in order to resume offering full-fledged loans to the population (loans for cars, mortgages) and business (for development, purchase of fixed assets, etc.). In addition, banks are now being forced to tighten credit risk assessment and show the real quality of their loan portfolios. That is, to disclose all the “bad” loans, under which bankers will have to

form additional reserves. “And more stringent approaches to assessing credit risks are unlikely to be an incentive for lending to the economy,” Shevchishin said. Requirements for borrowers from banks (primarily, the quality of collateral which they provide as security for loans) will also increase. Consequently, the circle of those who, even with the will and financial capacity, are able to issue a loan, will further narrow down. And this applies to both individual borrowers and businesses.

5

Healthcare Sector Development in Georgia at the 3rd Meeting Room Conference by PASHA Bank BY DIMITRI DOLABERIDZE

O

n June 9, PASHA Bank hosted its third business conference under the auspices of MEETING ROOM with the topic of ‘Healthcare Sector Development in Georgia’. MEETING ROOM brought together representatives from public and private sectors to discuss major issues concerning the healthcare sector. The MEETING ROOM covered, among other topics: overview of the healthcare sector, capital as a crucial pillar for healthcare sector development, current state and future vision for healthcare sector, implementation of effective hospital management processes in a developing and dynamic healthcare system, integration of Georgia’s private insurance system and the universal healthcare program, successful healthcare projects in rural areas, specific considerations for financing healthcare projects. “I would like to thank the business sector for its interest in the healthcare sector,” said Ketevan Goginashvili, Head of the Health Policy Division at the Ministry of Health, Labor and Social Affairs of Georgia. “Last year, the Georgian government spent 8 percent from the budget on healthcare, equaling Georgia to a number of modern developed European countries- the IMF and WHO recommendation for Georgia was to spend more than 4 percent on social services.

A recent survey showed us that the population in Georgia is satisfied with the progress made in the healthcare system”. Also present to head discussions were Davit Vakhtangishvili, Deputy CEO (Finance), EVEX Medical Corporation; Ana Kurkhuli, CFO of Vivo Medical Group; Besik Pestvenidze, Health Insurance Director, GPI Holding; Nodar Chikovani, Regional Coordinator, Medical Corporation Primed; and Goga Japaridze, CCO, Member of the Board of Directors of PASHA Bank. The meeting was moderated by George Sharashidze, General Manager of Georgia Today Group. “The gathering was engaging and informative, and the feedback we received from the guests was positive and inspiring. We plan to organize one more conference in 2017 as we see that this project provides a good platform for open discussions in different industries,” said Goga Japaridze, CCO, Member of the Board of Directors at PASHA Bank. MEETING ROOM is a project initiated by PASHA Bank - a series of business conferences that aims to bring together participants from various sectors providing a platform for sharing ideas and best practices as it relates to raising the capital for a wide range of industries. The previous two meetings were held in June and December of last year with the topics “Hotel Development in Georgia” and Sustainable Energy Development in Georgia - Case for Hydro Power Plants”.


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BUSINESS

GEORGIA TODAY

JUNE 13 - 15, 2017

Swiss-Georgian Conference on Vocational Education & Training (VET) BY MAKA LOMADZE

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n June 7, at the 6th Authorized School, the Embassy of Switzerland and the Georgian-Swiss Business Association organized a conference on vocational education and training (VET). The purpose of the event was to share Swiss experience and expertise in the field and to assist Georgia in revitalizing and generalizing VET as an educational model. Education reform is one of the priorities of the Georgian government and aims to establish and promoting a labor marketoriented VET system. Switzerland, with its dual track VET system combining practical work and theoretic lessons, enjoys a worldwide reputation in this regard and is highly successful both in terms of youth employment and economic competitiveness. “I’m well aware of the Georgian educational reform, in particular, the vocational educational training,” Swiss Expert on VET, Marc Bloch told GEORGIA TODAY. “The Swiss funded project is working with the Ministry of Education, as well as the Ministry of Agriculture, to put the reforms into practice step by step. These governmental reforms in education undoubtedly need time to be implemented, and there is a room for improvement,” he said. The reform process began in 2012 and the last four years have seen a lot of policies changed and many new systems being put forward. “The challenge now for Georgia is to put these policies and concepts into practice,” Bloch said. “In many countries, not only in Georgia, people look at vocational education as something inferior. This is very different in Switzerland where we highly appreciate vocational education. A person with a

certificate in vocational education is as welcome in society as someone with a university degree. In general, societies believe that academic knowledge is more valuable than practical knowledge. This is a mistaken perception and the Swiss example proves that”. In his presentation at the conference, Bloch pointed out that unemployment rates in Switzerland, Germany and Austria are the lowest in Europe due to the vocational education system. “You don’t need to have an academic degree to be innovative. A carpenter in Switzerland gets no less money than a man with an academic education. Further, every profession has its own union.” He also added that the private sector is responsible for the vocational education curriculum and not the government, because they know better what students should know in order to respond to market demand. “One of the biggest challenges in Georgia is teachers and lack of infrastructure. 90 percent of people in agriculture are self-employed as there is no labor market,” he lamented. Ambassador of Switzerland to Georgia, H.E. Lukas Beglinger, agreed. “Training is essential- as much for students as for companies active here in Georgia. Businesses need well-trained and well-skilled people and need to contribute from their side to the training. This is actually the part of the Swiss system – this very close partnership between government and the private sector, which is essential if the system is to succeed”. “In Switzerland, practical education is highly developed,” said Mikheil Mikeladze, co-organizer of the conference and President of the Georgian-Swiss Business Association, which implements quality that corresponds to Swiss standards. “Even as pupils, Swiss children learn from practical activities set up by various organizations, the specifics of the working process of companies. Once they graduate, they are already ready to start

Swiss Expert on VET, Marc Bloch, in Georgia to promote the Swiss model of Vocational Education

an independent working life. There are a lot of organizations in Switzerland that support this trend and send their employees to trainings, enriching their practical knowledge and those capacities and skills that are necessary for everyday work.” Agriculture plays an important role in the socio-economic development of Georgia as it is a major source of income for the rural population. A better system of vocational training and extension services is believed to be important for increasing productivity, creating jobs, and enhancing revenues. Tea Gulua, Expert of SDC/ UNDP project ‘Modernization of Vocational Education and Training & Extension Systems related to Agriculture in Georgia’ which started in 2013, says there are a lot of initiatives in the sector. “One of them is a dual approach of the Swiss pattern, which implies that a student should get training ‘in the field’”. The conference focused in particular on the role of the private sector, with Swiss companies presenting their best

practices and the Swiss Cooperation sharing its VET-related activities and expertise, in particular in the agricultural sector. A panel discussion headed by Eric Livny, Director of the International School of Economics Tbilisi (ISET), allowed the participants and the audience to address key questions such as the cooperation between professional colleges and companies as well as appropriate ways to motivate young people to start an apprenticeship rather than aiming prioritizing academic degrees. The panel saw the participation of Olivier Bürki, Regional Director of the Swiss Cooperation Office (SCO) for the South Caucasus; Shombi Sharp, Deputy Head of UNDP in Georgia; Tamar Samkharadze, Deputy Head of Vocational Education Development Department, Ministry of Education and Science ; and Revaz Asatiani, Deputy Minister of Agriculture of Georgia. Shombi Sharp, who represents the UNDP, grew up in the US in an agricultural state in which vocational education

came at a cultural level even in grade school. “We had various clubs going for the kids- ‘Future Farmers,’ for example,” he said. “Kids already gain exposure to husbandry from an early age. The Ministry of Culture [of Georgia] could look into such social/cultural clubs,” he suggested. Together the SCO, the UNDP is working to improve capabilities and bring the standards in public colleges to international levels. “Clearly, vocational training as a system here in Georgia is extremely important but it is new and making this transition to address skills gaps, labor market challenges and modernizing the economy takes time,” Sharp said. “The dual approach we’re working on is precisely geared towards enhancing the role and effectiveness of public colleges, bringing in the private sector from the very beginning of the process- companies looking at designing the curriculum and selecting students, and which are vetted themselves for suitability. Such partners train students for 50 percent of their study time, the remainder of which students spend in public colleges”. Pilot programs have just concluded in Akhalsikhe, Samegrelo, Mtskheta and Kakheti which saw 40 students graduating having gained experience on 11 partner farms of various size and export potential. “The government is creating a space that encourages private sector involvement,” Sharp says, like Ambassador Beglinger emphasizing that neither party can make the necessary system changes without cooperation from the other. “Potential participants need to be shown the benefits. The incentives should be shown for private sector companies and students. In Soviet times, vocational education was a punishment. We aim to show how, as it is elsewhere in the world, vocational education can be integrated into the general education curriculum,” Sharp said.


8

BUSINESS

GEORGIA TODAY

JUNE 13 - 15, 2017

The Galt & Taggart Research team comprises Georgian and Azerbaijani finance and economic experts who have broad experience of covering the macro and corporate sectors of the two countries. Our current product offering includes Georgian and Azerbaijan macroeconomic research, Georgian sector research, and fixed income corporate research. For free access to Galt & Taggart Research, please visit gtresearch.ge or contact us at gt@gt.ge.

Tourism Market Watch FOR GEORGIA TODAY BY KAKHABER SAMKURASHVILI

S

ector research is one of the key directions of Galt & Taggart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agriculture, Wine, and Real Estate sectors in Georgia. As part of our tourism sector coverage, we produce a monthly Tourism Market Watch, adapted here for Georgia Today’s readers. Previous reports on the sector can be found on Galt & Taggart’s website - gtresearch.ge.

NUMBER OF VISITORS AT GEORGIA’S MOUNTAIN RESORTS REACHES HISTORICAL HIGH DURING THE 2016-2017 SEASON Mountain Resorts Development Company (MRDC), the managing entity of Georgian winter resorts, has released a summary of the season. Thanks to favorable weather conditions, the season opened early in December in Gudauri and by the end of

less than 4,500. The unrealized potential of this resort, largely due to a severe shortage of accommodation units, has been recognized as an opportunity by investors. Alliance Group announced plans to open a 4-star, 100-room Ramada Resorts hotel in Goderdzi in 2018, while Metro Atlas Georgia is planning to open a 5-star Metro Sky Tower by end-2018. Both hotels will feature casinos.

the year, all winter resorts were receiving guests. The early start provided a welcome boost, as the total number of visitors to Georgia’s winter resorts exceeded 400,000 (+37.0% y/y) during the season. Notably, according to MRDC, only about 20% of the visitors were foreign visitors, leaving significant upside potential.

GUDAURI REMAINS THE MOST POPULAR SKI RESORT, HOSTING MORE THAN 276,000 VISITORS DURING THE SEASON, UP 37.1% Y/Y The number of visitors to Gudauri has increased more than three-fold from almost 89,000 visitors during the 2011-2012 season. The resort’s proximity to the Russian border makes it especially attractive for Russian skiers. Currently Gudauri features 10 ski lifts, with combined tracks of approximately 70km, and visitors can enjoy skiing, snowboarding, paragliding, and heli-skiing. MRDC and the Ministry of Regional Development and Infrastructure are currently working on a 7.5km Kobi-Gudauri ski lift, which will connect Gudauri with Kazbegi. The project is expected to be finished by end-2018 and

TBILISI HOSTS 3RD EURO-ASIAN MOUNTAIN RESORTS CONFERENCE

will be the longest lift in the Caucasus. Other projects include an artificial lake for snowmaking purposes, which would prolong the winter season in Gudauri.

REAL ESTATE DEVELOPMENT COMPANY (RED-CO) TO INVEST US$ 150MN IN GUDAURI The company presented a four-phase project that was prepared according to the 2015 master plan for further development of the Gudauri resort, created by Ecosign Mountain Planners LTD, a Canadian company. Red-co acquired 50 hectares of land to implement its plans. The company currently operates with four apart-hotels, featuring approximately 350 rooms, in New Gudauri. The massive project envisages the construction of 26 buildings and will provide an additional 4,200 beds in hotels, aparthotels, townhouses, and villas. The master plan also includes entertainment facilities, such as restaurants, spa centers, sports grounds, and a casino. During each phase of the project, Red-Co plans to introduce an international branded hotel. A 170room Radisson Blu is expected to be completed in 2018 and the company has also received preliminary approval from Starwood Hotels and Resorts to open Sheraton and Four Points by Sheraton hotels in the future

MAJOR DEVELOPMENT IN THE WORKS FOR BAKURIANI, WHICH HOSTED OVER 115,000 VISITORS IN THE 20162017 SEASON, UP 24.6% Y/Y The coming years will see Olympic infrastructure development at the resort, with a biathlon track, ski jumping hills, and an ice hockey rink in the pipeline. Furthermore, Georgian Reconstruction and Development Company (GRDC), in a PPP with the Georgian government, plans to invest GEL 100mn in the development of the Kokhta-Mitarbi resort, adjacent to Bakuriani. The resort will be developed according to a master plan prepared by the industry leader, Geode. The first phase of the development will feature a 100-room hotel, set to open by end-2017, and a 500-unit apartment complex, part of which is also expected to be completed by the 2017-2018 season.

WINTER RESORTS IN SVANETI AND ADJARA REGIONS ALSO HAVE STRONG DEVELOPMENT POTENTIAL Tetnuldi, which opened at the end of 2016, hosted nearly 9,000 visitors this season, while the nearby Hatsvali received over 7,300 visitors. Development plans include new 1.8km and 3.5km ski lifts connecting Mestia to Hatsvali and Tetnuldi, respectively, which will considerably improve access to the resorts year-round. The number of visitors at the Goderdzi resort was down 34.3% y/y to slightly

FIRST BRAND HOTEL IN KUTAISI UNDER BEST WESTERN INTERNATIONAL Within the framework of the Georgian Hotels’ Regional Network Development Project “12 hotels in 12 regionsâ€? by GHYHORSPHQWFRPSDQ\Âł6LPHWULD´WKHÂżUVWEUDQGKRWHOKDV been opened in Kutaisi under the Best Western International brand. The hotel accommodates 45 guest rooms, including 40 standard rooms and 5 suites. The hotel was designed taking into consideration special conditions and safety for guests with disabilities.

Address: 11 Grishashvili Str., 4600, Kutaisi, Georgia TEL 219 71 00 info@bwkutaisi.com

Three mobile conference halls are available with a total capacity of about 100 persons. (XURSHDQFXLVLQHFDQEHHQMR\HGLQWKHJURXQGĂ€RRUFDIp and a grill-bar menu in the roof top restaurant with panoramic views over the city. The International Hotels Management Company “T3 Hospitality Management,â€? providing the hotel management, has 20 years’ experience in hotel management in different countries globally.

The conference was organized by the government of Georgia and MRDC under the title, Innovative Strategies for Sustainable Mountain Tourism Development. Government officials, international experts, and industry-leading companies gathered in Tbilisi and discussed the challenges and opportunities of Georgian mountain tourism.

NUMBER OF INTERNATIONAL ARRIVALS UP 5.7% Y/Y TO 0.55MN IN MAY 2017 Out of the top four source markets, there was strong growth from Armenia (+8.9% y/y), Azerbaijan (+8.5% y/y) and Russia (+16.8% y/y). A 24.4% y/y decrease in arrivals from Turkey, in line with the downward trend of the last few months, was the main drag on growth in the total number of visitors. Arrivals from the EU were up 13.0% y/y to over 28,000 visitors, while Ukraine also posted solid growth (+20.2% y/y).

NUMBER OF INTERNATIONAL ARRIVALS IN THE FIRST 5 MONTHS OF 2017 UP 9.7% Y/Y TO 2.33MN VISITORS The number of visitors increased from all major source countries except for Turkey (-17.8% y/y). The largest individual contributors to overall growth were Armenia (+13.2% y/y, +2.8ppts) and Russia (+22.1% y/y, +3.2ppts), while Azerbaijan contributed 1.5 percentage points, as the number of visitors from Azerbaijan posted a modest increase of 5.6% y/y from the high base of the first five months of 2016 (+22.1% y/y).

WHILE THE TOP FOUR SOURCE MARKETS ACCOUNTED FOR 82.0% OF TOTAL INTERNATIONAL ARRIVALS JANUARY - MAY, SECONDARY SOURCE MARKETS ALSO POST ROBUST PERFORMANCES Arrival growth from secondary (non-EU) source markets contributed 5.4ppts to the overall growth of 9.7% y/y. The number of Iranian visitors was up 3.2x to nearly 83,000 visitors. The number of Indian visitors was up 122.7% y/y to over 21,000, while the number of Israeli visitors increased 54.9% y/y to almost 32,000 visitors. Arrivals from the EU were up 21.9% y/y to over 93,000 visitors, with Germany (+26.7% y/y), Poland (+21.4% y/y), and UK (+22.1% y/y) driving the growth.

TOURIST CATEGORY CONTINUES TO DRIVE ARRIVAL GROWTH IN MAY 2017 The number of overnight visitors (‘tourist’ category) was up 19.6% y/y and accounted for 44.4% of international arrivals. Same-day arrivals were down 9.2% y/y, while the number of transit visitors increased 7.2% y/y. In the first five months of 2017, the number of tourist arrivals is up 25.0% y/y to 0.98mn, while the number of same-day visitors is down 3.4% y/y and the number of transit visitors is up 10.1% y/y.


BUSINESS

GEORGIA TODAY JUNE 13 - 15, 2017

Iran & Its Regional Ambitions BY EMIL AVDALIANI

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istorically, Iran has always been a regional power. From Achaemenids to the Sasanians, in the ancient period and the XVII-XVIII cc., Iran, under various dynasties, aspired to achieve a major role in the Middle East, South Caucasus or parts of Central Asia. When, during the Cold War period, sanctions were placed against Tehran’s nuclear program, Iran was constrained in expanding its role in the above-mentioned regions. However, sanctions were officially lifted in 2016 and the Trump administration seems to have no plans to change course in the near future. In fact, Iran’s role in the region is only set to increase, though there are significant constraints the country will face with Russia and Turkey being so well represented both militarily and economically in the South Caucasus and Central Asia. Russia and Iran have long been geopolitical rivals. Russia, for instance, wants to obstruct any Iranian moves to establish Russian-influence-free pipelines or railways to Armenia and Georgia. Yet both countries will nevertheless work together to block Western-led infrastructure projects. Another common interest will be to avoid any foreign military presence in the region, particularly in Georgia. Iran has lagged far behind its regional competitors in terms of economic and military influence in the region, but the country has a number of reasons to now increase its involvement in the South Caucasus. One is Europe’s willingness (although unsuccessful) to diversify its gas market from Russian gas. Thus, access to Georgia’s Black Sea coast is a natural development. Tehran has oft expressed its willingness to use the Trans-Anatolian Gas Pipeline and the Trans-Adriatic Pipeline. For Iran, another way to reach Batumi and Poti would be through Armenia. Difficult relations with Turkey over the Syrian conflict make the route through Armenia a good option. Talks around the construction of a $3.7 billion railway are stalled as there are difficulties finding finances for the project. Another reason is that neighboring Azerbaijan already has the necessary pipeline infrastructure and the upcoming BakuTbilisi-Akhalkalaki-Kars railway will only strengthen Iran’s willingness to use the Azerbaijan route. On June 6, the heads of Georgian, Iranian and Azerbaijani railways discussed launching a new South-West Transport Corridor, in which Georgia

will play a vital transit role connecting the Persian Gulf and India to Europe. Again, because of Russian interference, regional powers are circumventing Armenia to get their exports to the European market. Iran intends to increase its trade with South Caucasus countries and it was mentioned that trade with Georgia and Azerbaijan is expected to grow from approximately $1 billion to $3 billion. Post-sanctions, another area of Iranian involvement could be the Nagorno-Karabakh conflict. There were attempts by Tehran to mediate the conflict in the early 1990s but it largely failed, and Russia, the dominant power in the conflict resolution process, would likely be much opposed to any Iranian meddling which might diminish Moscow’s role. Indeed, despite the disputes over influence in the South Caucasus, Russia and Iran have shown they can also cooperate. Economics is one sphere. For example, in the North-South corridor where Moscow and Tehran cooperate alongside Baku. Another area of cooperation is both countries’ willingness to obstruct NATO/US/EU’s presence in the region. From the Iranian perspective, the growing military cooperation between Turkey, Georgia and Azerbaijan, which I discussed in the previous issue of GEORGIA TODAY, could potentially create a problem. The same problem could be seen in the expansion of NATO, primarily in Georgia. Russianthinking could well align with that of the Iranians as both fear Western military encroachment on their spheres of influence. Both also loath Turkish influence in the region. Here, too, Russians are more predominant than the Turks in terms of military presence in the region. However, in trade and investments, Turkey is unquestionably at the forefront. True, there were positive developments in Azerbaijan-Iran relations recently, but it is still Ankara which enjoys exceptional relations with Baku and supports it in the simmering NagornoKarabakh dispute. Thus, while the lifting of sanctions against Iran will help the country enjoy a freer hand in asserting itself in the South Caucasus economically and politically, the country will nevertheless face substantial challenges from Russia and Turkey. Armenia-Russia relations are too ingrained in mutual military and economic cooperation for Iran to manage to insert itself while, elsewhere, Turkish economic and political influence still overshadows Iran’s ambitions and even in the Nagorno-Karabakh conflict Russia will use all its tools to block Tehran’s greater involvement.

Georgia Receives $403.3m in FDI in 2017 BY THEA MORRISON

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he National Statistics Office of Georgia (GEOSTAT) has released the preliminary data of the Foreign Direct Investment (FDI) in Georgia for the First Quarter (Q1), 2017. The statistics say that Q1 2017 FDI amounted to $403.3 million, which is 3.7 percent more compared to the preliminary data of Q1 2016. Azerbaijan ($97 million), Turkey ($82 million) and the United Kingdom ($80 million) are the top three countries to invest most in Georgia in

the given period. The top three fields which saw the largest investments, are: Transport and communication: $141.1 million (35 percent of all FDI). Real estate: $80.3 million (20 percent of all FDI). Financial: $79.6 million (20 percent of all FDI). The total amount of investments in these fields amounted to 74.6 percent of all FDI. The National Statistics Office of Georgia is a legal entity of public law and carries out its activities independently. It is an institution established to produce statistics and disseminate statistical information according to Georgian legislation.

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BUSINESS

GEORGIA TODAY

JUNE 13 - 15, 2017

Bürki on Vocational Education

INTERVIEW BY VAZHA TAVBERIDZE

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livier Bürki, the Regional Director of Cooperation at the Swiss Cooperation Office in Georgia was on hand to deliver more Swiss know-how on the finer details of vocational education in a joint interview with GEORGIA TODAY and Businesscode TV show. "Let me start by explaining why we think VET is important for Georgia: more than 50 percent of the Georgian population still lives in rural areas. If you take the example of Switzerland, there is a sharp contrast between Georgia and my country – in Switzerland, 2/3 of all youth opt for vocational rather than for universities. 60 percent of Swiss people chooses vocational education over a university diploma. Why? Because they get excellent education, invaluable practical knowledge and then they have the possibility to get their desired job, which happens at the end of their apprenticeship. And you know what? We in Switzerland have a less than 4 percent unemployment rate, so there’s a direct correlation between having young people possessing necessary knowledge and skills adapted for the private sector and them finding a job at the end of their education."

Well, fine-tuning this system has taken decades in Switzerland. But while there is no blueprint, I can assure you that there is immense potential for Georgia to reap the benefits of the vocational system. The basis is most certainly there, with the 50 percent still employed in the field of agriculture, what you need is more small and medium enterprises for more job opportunities. And vocational education is a key aspect of that. We need to find a proper system for Georgia, and in Georgia it’s called Workbased Learning.

YET THERE IS A MENTALITY PROBLEM IN GEORGIA. IN YOUR AVERAGE GEORGIAN FAMILY, HAVING A UNIVERSITY DIPLOMA IS A THING OF PRESTIGE, DESPITE THE WAYS OF ACQUIRING IT. TAXI DRIVERS WITH TWO DIPLOMAS ARE A COMMON OCCURRENCE, AND PHYSICAL LABOR IS OFTEN LOOKED ON DISDAINFULLY. HOW DO YOU PLAN TO CHANGE THIS? The short answer to that question is this – IF the young people see that they'll find a job at the end of their education, then they’ll opt for vocational education, social misconceptions notwithstanding. We have to tell the people of Georgia that vocational education is good, but on the other hand, we also need to deliver proof of it.

HOW LONG TILL WE HAVE THINGS UP AND RUNNING LIKE THIS IN GEORGIA?

THAT’S A BIG IF. WHAT’S THE SWISS SIDE DOING TO TURN THIS IF INTO A WHEN?

…with the 50 % still employed in agriculture, what you need is more small and medium enterprises for more job opportunities

Switzerland is a longtime supporter of Georgia’s agricultural development. And we believe that vocational education is one key aspect of developing and expanding this sector. This is an opportunity to gain crucial knowledge and capacity at the vocational colleges and then be able to translate this knowledge into practice and enterprise. Over the last five years, we, together with the UNDP, committed more than 6 million Swiss Francs to promote and support the development of vocational education. The first step was enhanced coordination and cooperation between the ministries of agriculture and education, the second was the development of a proper curriculum for teaching students at the colleges, organizing various trainings and so on, and now we are finally reaching the stage where we can, so to say, actually touch the very core and essence of vocational education – to have a possibility to actively have youth gaining real experience in whatever their chosen area is in the agriculture field.


SOCIETY

GEORGIA TODAY JUNE 13 - 15, 2017

Natakhtari Fund, Coalition for Children & Youth Sign Cooperation Memorandum

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CULTURE

BY NINO GUGUNISHVILI

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atakhtari Fund and the Georgian Coalition for Children and Youth signed a memorandum of cooperation on June 9. The document was signed by Nikoloz Khundzakishvili, Director of Corporate Affairs at Natakhtari Company and Maya Mgeliashvili, Head of the Board at Children and Youth Coalition. The cooperation aims at supporting youth who find themselves out of the state care system, to ensure they have enough financial means to start living independently. With joint efforts from Natakhtari Fund and the Coalition for Children and Youth, a mechanism enabling local authorities to assist and strengthen youth outside the care system is to be created. The advocacy campaign entails collaborating with the local and central authorities to ensure the recommendations implemented are being met. A media workshop will be organized in the framework of the campaign, alongside working meetings for interested parties and active advocacy campaigns for municipality budgets to support vulnerable children and youth. Within the framework of the signed cooperation agreement, legislativefinancial instruction, a guideline for use of available resources and an appeal for funds to address the needs of vulnerable children and youth groups will be designed. “Advocating for the support of vulnerable children and youth is a critical issue that needs to be addressed and that’s why we decided to join efforts,” Khundzakishvili said at the event. Established in November 2011, the Natakhtari Fund launched the “Care the Future” charity project. With GEL 747,857 collected in five years, the fund enabled provision of educational and employment assistance services to 307 beneficiaries. The project is realized in part-

nership with NGO Our House-Georgia, and with the support of the Patriarch of Georgia Ilia II. In the years 2016-2017 alone, the fund assisted 158 beneficiaries (GEL 160.000). Through the Care for the Future project, 131 beneficiaries found employment, 256 acquired different professional skills, 102 were assisted in learning school subjects, 25 beneficiaries got their driving licenses and 89 got scholarships and apartment rental. According to the statistics, five to six young people leave the state care institution system every year in each region of the country. “We hope that, together with the 42 organizations united at the Coalition for Children and Youth, and with our extensive experience and expertise in advocacy, we will have the opportunity to protect the vulnerable groups from falling into criminal system, assisting them to be well equipped, and supporting them in problem-solving problems as they enter their adult lives,” said Mgeliashvili prior to the signing of the memorandum of cooperation. “We hope to achieve sustainable, long-term results in changing the system”. An example of case studies was presented by Nino Chitanava, the Coordi-

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nator of the fourth working group at the Coalition for Children and Youth, identifying the major challenges faced by vulnerable groups of youngsters at the age of 18. The non-existence of proper housing, unsuitable physical environment for living, limited access to education, unemployment, lack of competitiveness, health issues, limited socialization, stigma related to the fact of being raised in the care system, nonexistence of social support networks, and the lack of social skills such as selfconfidence, leadership, communication, advocacy were named as defining factors in the marginalization of vulnerable children and youth groups in Georgia. “The systematic approach we’re implementing and are willing to conceptualize is also applicable to children and youth with special needs,” Mgeliashvili said. “The main problem is that these youngsters don’t have a chance to acquire education and employment. At the age of 18, they are left all on their own with no means. When we started the program, back in 2011, our main objective was to help the ones who had already left the state care institutions. We’re assisting them to the point where they can take care of themselves,” said Nikoloz Khundzakishvili.

Journalists: Tony Hanmer, Zaza Jgarkava, Maka Bibilashvili, Dimitri Dolaberidze, Maka Lomadze, Tim Ogden, Joseph Larsen, Vazha Tavberidze, Nugzar B. Ruhadze, Nino Gugunishvili, Thea Morrison Photographer: Irakli Dolidze

BI Auction for Art Partners with Solo for Upcoming Auction BY NINO GUGUNISHVILI

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ollowing their successful endeavor to showcase some of the best-known Georgian artists, which consequently resulted in founding BI Auction for Art, Georgian Art collector and gallery owners Ika Bokuchava and Bengu Akcardak Kucuk are partnering with Bank of Georgia’s Solo for their upcoming art auction this Wednesday, June 14. The date also represents one year since the start their ambitious project. “When we started BI Auction back in 2016 as a business venture, we had the desire to start an auction business to bring Georgian art and artists to the attention of Georgian and foreign art collectors,” Bengu tells GEORGIA TODAY. “In one year, we’ve held three art auctions, introducing 156 paintings to clients and auction visitors who had a chance to buy the art works at exclusive prices. This week, we’re having our fourth auction, this time together with Solo, Bank of Georgia’s Private Banking,” she said, adding that it is a “one time event” which will last two hours. The art for the auctions was collected from 82 painters, chosen from 1000 paintings, and, as Bengu told us, as they aim to improve their collections at each auction. “We put incredible effort into organizing events,” Bengu tells us. “As a collector and art lover, I want fellow collectors to open their eyes and ears to take advantage of these incredible pieces of art. We overcame the barriers of starting a business in the art sector and we are glad it is succeeding”. Bengu believes that having Bokuchava as her business partner, notwithstand-

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ing the fact that they have different tastes, makes them powerful business companions, a fact, she says, which could be seen as the secret of their successful cooperation. “At our third auction, we decided to focus on and present only contemporary Georgian artists, whereas previously we had showcased more classical paintings. It was also something very new for Georgia,” Bengu says, adding that it was a great success and she takes it as a positive sign to continue in this vein. “We can clearly see the tendency of the Georgian art market growing, with more art buyers emerging and many new exhibitions happening- not only in museums, but in galleries, hotels, so we see that there is more attention, and certainly the demand is growing,” she says. “The process of selecting art works is complex, as we want buyers to experience that feeling of beauty, yet recognize that everyone has a different understanding of what beauty means,” Bokuchava tells us. “Bengu chooses paintings that are brighter, more joyful, whereas as a collector of old Georgian artists, I tend to focus on rare and hardto-find pieces”. BI Auction also offers a ‘find’ service whereby a client can suggest what art works they want to see presented at an upcoming auction, and the organizers say that they are open to any art collector who has interesting pieces to offer. “We would like to thank GEORGIA TODAY for offering its readers the chance to read interviews featuring Georgian artists- we consider it hugely important to shine the spotlight on their artwork. Apart from organizing auctions, our main goal is to promote Georgian art. Art adds value to our lives and at the same time, it is a great investment,” Bengu concludes.

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Issue #954 Business  

June 13 - 15, 2017